Hardly Anybody Launched a New Commodity ETF Last Year: Time to Buy

By Brendan Conway

I’m only half serious. But you can judge how “hot” a given investment niche is by how many exchange-traded funds are launched. And when something is “hot,” it’s often best to be skeptical.

The craze for volatility-trading took off just after the financial crisis. Master-limited partnerships went bonkers after a few years of strong performance. Bond ETF flows were bananas in 2012, even though yields are stretched seemingly as far as they can go. And so forth.

In that vein, you can count the number of commodity exchange-traded funds and notes launched in 2012 on two hands. Financial Products Research’s ETF Business Reviewcounts ten. Maybe that’s worth viewing as a positive on commodities.

The commodity funds and notes that did launch last year didn’t accomplish much of anything when it comes to drawing assets. Here are the most successful, per FPR:

FPR’s Rob Ivanoff and colleagues’ interpretation was that the tiny number of commodity launches

signaled a) tactical assumption that China is still slowing down, which in asset managers’ eyes will negate the need for high prices in commodities, and b) focus away from core commodities, towards alternative ETPs.

Or it could simply be that investors devote but a small portion of their portfolios to commodities, and there are already a number of funds out there.

Gold has been a huge draw in recent years, helping make the SPDR Gold Trust (GLD) the second biggest ETF on the entire market, with $73 billion in assets. Gold is undoubtedly crowding the room.

There are also plenty of successful diversified commodity funds already on the market, like the $6.6 billion PowerShares DB Commodity Index Tracking Fund (DBC).

But I’d side with Ivanoff & Co.: Sentiment is pretty darned depressed, which sometimes means it’s time for a second look.

About Focus on Funds

As exchange-traded funds and other investing vehicles have ballooned in number, the task of figuring out what works well and what doesn’t has only gotten harder. Barrons.com’s Focus on Funds looks under the hood of ETFs, mutual funds and hedge funds for overlooked values, actionable ideas and the latest pitfalls for fund investors.

Chris Dieterich has covered the U.S. stock market for The Wall Street Journal and Dow Jones Newswires. He is a graduate of Regis University and the Missouri School of Journalism.